Pound Sterling holds onto gains against US Dollar as Trump tariff fears ease
- The Pound Sterling trades firmly near 1.2900 against the US Dollar as investors see US President Trump tariffs less fearful.
- Trump is poised to provide a one-month exemption for tariffs on automobiles from Canada and Mexico.
- BoE officials have guided a gradual policy-easing approach.
The Pound Sterling (GBP) clings to gains near 1.2900 against the US Dollar (USD) in European trading hours on Thursday. The GBP/USD pair exhibits strength as the risk premium of the US Dollar has diminished significantly, with investors expecting the United States (US) President Donald Trump’s tariff agenda to be less fearful than what they had projected earlier.
Markets currently see Trump’s tariffs more as a tactic to have a dominant position while negotiating deals with US trading partners. On Wednesday, White House Press Secretary Karoline Leavitt said that the US President will exempt automobiles from 25% tariffs imported from Canada and Mexico for a month, which he imposed on Tuesday.
"We spoke with the big three auto dealers and are going to give a one-month exemption on any autos coming through USMCA,” Leavitt said and added, “Trump is open to hearing about additional tariff exemptions.” Also, the US President is considering providing the exemption on some agricultural products too, Agriculture Secretary Brooke Rollins told Bloomberg.
Going forward, the US Dollar will be influenced by the US Nonfarm Payrolls (NFP) data for February, which will be released this Friday. The labor market data will influence market speculation about the Federal Reserve’s (Fed) monetary policy outlook. Investors expect the economy to have added 160K jobs, higher than 143K in January. However, the US ADP reported on Wednesday that the private sector added 77K fresh workers in February, significantly lower than estimates of 140K and the former release of 186K.
Daily digest market movers: Pound Sterling trades with caution while BoE guides gradual interest rate cut approach
- The Pound Sterling trades cautiously against its peers on Thursday despite Bank of England (BoE) officials reiterating a “gradual and cautious” policy easing approach while testifying before Parliament’s treasury department on Wednesday.
- BoE Monetary Policy Committee (MPC) member Megan Greene advocated for a “gradual path” for “removing monetary policy restrictiveness” as the inflation persistence is less likely to fade on its own accord. BoE Chief Economist Huw Pill argued that there is more work to do to “squeeze out” underlying inflation.
- BoE Governor Andrew Bailey said more about the consequences of US President Donald Trump-led trade war on the global economy. However, he warned that the hike in employers’ contribution to National Insurance (NI) announced by Chancellor of the Exchequer Rachel Reeves in the Autumn Budget will increase job costs by 2%, lifting inflation by 0.1%-0.2%.
- Meanwhile, traders have fully priced in two more 25 basis points (bps) interest rate cuts by the BoE this year. The BoE also reduced its key borrowing rates by quarter-to-a-percent in the February policy meeting to 4.5%.
Technical Analysis: Pound Sterling clings to gains near 1.2900
The Pound Sterling rises to the 61.8% Fibonacci retracement plotted from the late September high to mid-January low and tops near 1.2930 on Thursday. The long-term outlook of the GBP/USD pair has turned bullish as it holds above the 200-day Exponential Moving Average (EMA), which is around 1.2680.
The 14-day Relative Strength Index (RSI) climbs above 60.00, suggesting a strong bullish momentum.
Looking down, the 50% Fibo retracement at 1.2767 and the 38.2% Fibo retracement at 1.2608 will act as key support zones for the pair. On the upside, the psychological 1.3000 level will act as a key resistance zone.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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